Details on transaction. Advanced Technology Investment Company LLC (ATIC) of Abu Dhabi yesterday proposed to acquire Chartered Semiconductor via a scheme of arrangement. Under the scheme, ATIC will pay a cash consideration of S$2.68/share (~1.1x 2Q09 NTA and 3.5% premium from last price), while the consideration for each American Depositary Share (ADS) is estimated at US$18.64 (0.75% discount from last price). Temasek Holdings, which currently owns 62.3% of Chartered's shares, fully supports the acquisition and has signed an irrevocable undertaking to vote in favour of the transaction. We note that the transaction is expected to close during 4Q09, subject to regulatory and shareholder approvals (not less than 75% approval). Upon the scheme becoming effective and binding, Chartered will become a wholly-owned subsidiary of ATIC, and is expected to be delisted from SGX-ST and NASDAQ.

Upward revision in 3Q09 guidance. In a separate announcement, Chartered also revised its 3Q09 revenue guidance upwards to US$405- 415m (US$382-394m previously) on incremental improvement in business from its mature technologies. In line with the higher revenue, its bottom line is now expected to narrow to US$0-8m loss (US$17-27m loss previously).

This set of revised projections exceeded both our 3Q09F revenue of US$394.0m and net loss of US$16.8m, and meant that its revenue is expected to grow at faster 16.0-18.9% QoQ (9.5-12.9% QoQ previously), while its earnings may be reaching its breakeven level sooner than expected.

Accept the offer. We have raised our FY09-10 revenue forecasts by 2.5- 4.2% following the upbeat update by management. More importantly, we now see the possibility of Chartered returning to profitability as soon as FY10. As such, we use a higher 1x blended FY09/10F NTA (0.6x FY09F NTA previously) and derive a fair value of S$2.44 (vs. S$1.46). While we have turned increasingly positive on Chartered's growth prospects and the overall semiconductor industry, we caution that the economic outlook remains largely uncertain and volatile. With the offer price at 9.8% premium to our fair value and we see a slim chance of a competing bid, we think that investors would be better off by accepting the offer rather than face any downside risk due to the uncertain economy. For investors who do not wish to rely on outcome of deal, we also see opportunity to sell into strength should the share price exceed the offer price.